Chapter 31 Tobacco exports, imports and smuggling

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Tobacco exports, imports and smuggling: Smuggling

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It is clear that governments are the main losers of tax revenue. But it is interesting to

look at who benefits from smuggling. Given the magnitude of the gap between world

cigarette exports and imports, it is intriguing to speculate what might be the attitude

and role of the chief beneficiaries of this illegal trade: companies that manufacture the

cigarettes. They benefit from smuggling in several ways. First they gain their normal

profit by selling the cigarettes (legally) to distributors. The cigarettes then find their

way on to the streets where they sell at greatly reduced prices, stimulating demand.

This puts pressure on governments not to increase tax because of the loss of revenue,

which may also result in lower prices and higher consumption. Then the industry uses

this to urge governments to reduce, or not to increase, taxes. Finally, contraband

cigarettes that are intercepted by customs have then to be replaced - yet more sales.

Quote from UICC Tobacco Control Fact Sheet, Cigarette Smuggling. International

Union Against Cancer, 1996

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In 1995, world cigarette exports were 963 billion cigarettes, and imports were 689

billion. The "missing" 274 billion cigarettes were smuggled, often with the collusion of

tobacco companies. In the European Union, 50 billion cigarettes were smuggled,

resulting in $6 billion in lost tax revenue; one smuggled truck load can evade $1.2

million in taxes. Contrary to the claims of the tobacco industry, high taxes do not

encourage smuggling. Spain, with the lowest price, has high smuggling rates, as

does Italy. Sweden has the highest price and only 1/2% smuggled; the UK has only

1% of cigarettes smuggled, and France, 2%.

10th World Conference on Tobacco or Health, Beijing, 1997 (Luk Joosens)

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Contraband cigarette market shares in European Union countries are Spain and

Austria 15%, Italy 11.5%, Germany 10%, Greece 8%, Ireland 4%, France, Sweden,

and Norway 2%, and the United Kingdom, 1.5%. Countries with the highest prices

tend to have the lowest rates of smuggling.

Tobacco Control, Spring 1998, p. 67

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Monday, July 24, 2000

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